How to avoid closing costs sticker shock
By KRISTI BAILEY
Closing costs are an all-too-common surprise for some homebuyers. Their focus was on finding their next home, getting a good deal, and the other things that come with real estate transactions. Getting a grip on closing costs should have had a place in the planning.
Depending on the home price and a couple of other factors, buyers can expect to pay somewhere in the neighborhood 2 percent to 5 percent of the loan principal in closing costs, according to Bankrate.com.
Here are some of the items that show up in a full closing cost picture.
– Credit report fee.
– Loan origination fee.
– Attorney’s fees.
– Charge for inspections.
– Discount points.
– Appraisal fee.
– Survey fee.
– Title insurance.
– Title search fees.
– Escrow deposit.
– Pest inspection fee.
– Recording feed.
– Underwriting fee.
There’s no way to get around closing costs. However, there are things buyers can do to reign in those costs. Mortgage Reports, a publisher of personal finance news and advice, offers some tips that all homebuyers should add to their checklist before they head to the closing table.
Here is a sample of the Mortgage Report’s tips:
– Don’t overpay on discount points. These one-time, upfront fees get buyers a lower mortgage rate. For those who plan to keep the mortgage for more than seven years, it can mean paying a little more upfront in exchange for long-term savings. However, “discount points have the secondary effect of lowering a loan’s APR. Because of this, lenders will often use discount points as a way to make rate quotes look more attractive. Lenders know consumers shop by APR even though they shouldn’t. One way to reduce closing costs is to pay the proper number of points for your particular situation, which may actually be zero. Discount points can be tax-deductible, but they can’t be refunded once paid.
– Opt for low or zero-closing cost when appropriate. This option is actually a loan that doesn’t reduce the total costs paid – it reduces the cost paid by the borrower. Closing costs are paid by the lender for a higher mortgage interest rate on the loan. This option is a “good way to step down your mortgage rate while the market gradually improves.
– Chose the proper loan type for your needs. Mortgage products vary from conventional to FHA, VA, USDA or jumbo loans, and more. Each can meet specific borrower needs. But each loan comes with its own set of closing costs. It takes some homework, but selecting the right product can be a money saver.
– Choose a realistic rate lock. They are typically available in 15 to 60-day increments and 15 or 30-day increments thereafter. Lenders charge more for longer locks. Closing costs can be lowered with a “realistic and appropriate rate lock.
And for those sometimes tricky “are closing costs tax-deductible” discussions, check out this and the other advice articles at the National Association of REALTORS’® HouseLogic Website https://www.houselogic.com/finances-taxes/taxes/are-closing-costs-tax-deductible/.
HouseLogic is a free source of information and tools from the NAR that you can consumers make smart and timely decisions about their homes. HouseLogic content covers home improvement, maintenance, taxes, finance, insurance, and ways for homeowners to get involved in and enrich their communities.
NETAR is the voice for real estate in Northeast Tennessee. It’s the largest trade association in Northeast Tennessee, Southwest Virginia region representing over 1,400 members and 100 affiliates involved in all aspects of the residential and commercial real estate industries. The association’s monthly Pending Sales Report, Home Sales Report, Commercial Real Estate Transactions Report, and more on the NETAR website at